Acc 3010 Flashcards
Sole Proprietorship
- Simple to establish
- Owner-controlled
- Tax Advantages (taxed as owner is)
- Complete liability
Partnership
- Simple to establish
- Shared control
- Broader skills & resources
- Tax advantages
Corporation
- Easier to transfer ownership
- Easier to raise funds (money comes from common stock & expand ownership to public. Can also borrow)
- No personal liability (If someone sues a SP or partnership, they can take personal assets, not just business assets, where when suing the corporation, they can take only take business assets)
Sarbanes-Oxley Act (SOX
Corporate leaders must put in writing that they were responsible and understood the numbers in financial statements & requires auditors to look at more than just financial info, must look at internal control for fraud
Name the 3 types of business activity
Financing
Investing
Operating
Liabilities
Amounts that are owed to creditors
Creditors
Party to whom amounts are owed
Common Stock
term used to describe the amount paid by stockholders for shares they purchase.
Dividends
Payments to stockholders from the company (Financial activity)
Assets
Resources owned by a business
Revenues
Amounts earned from the sale of products and other sources (sales revenue, service revenue and interest revenue), not necessarily cash
Expenses
Cost of assets consumed, or services used (Cost of goods sold, selling, marketing, administrative, interest and income taxes expense) not necessarily cash
Net Income
When revenues exceed expenses
Net Income is needed to determine the ending balance in retained earnings
Net Loss
when expenses exceed revenues (common among startup companies)
Four financial statements in logical order
- Income Statement
- Retained earnings statement
- Balance sheet
- Statement of cash flows
Income Statement
Reports net income, net loss, REVENUES and EXPENSES for a specific period of time (nothing longer than a year)
• Heading includes name of company, the type of statement, the date (period of time)
Balance Sheet
Reports assets and claims to assets at a specific point in time
Assets = Liabilities + Stockholders’ equity
Lists assets first, followed by liabilities and stockholders’ equity
Only shows the exact day, not time period
Statement of Cash Flows
- Looks at cash flows of the company and what activity generates these cash flows
- Cash on the Balance sheet must match cash at the end of the period on Statement of Cash Flows sheet
- Looks at changes in cash during the period
Assets (accounting equation)
(“Stuff” aka cash, accounts receivable, trucks, buildings, stuff we own and use with the business)
Liabilites (accounting equation)
Creditors, borrowed money to buy assets, creditors now have claims against the business for amounts we borrowed from them
Equity
everything we own either has a claim to it by the creditor or is owned by the owner
Annual Reports
U.S. companies that are publicly traded must provide shareholders with an annual report
- Financial Statement (shows the numbers)
- Management discussion and analysis (management’s story, not audited, but reviewed, basically says how they got cash, what they did with it, etc.)
- Notes to the financial statements (process, rules, guidelines, choices that company makes)
- Auditor’s report (independent, 3rd party to come and evaluate and offer opinion on financial information)
When preparing an income statement, which of the following is the proper order for income statement components?
Irregular items, Net income, Other comprehensive income items, Comprehensive income
An income statement would not include
Dividends paid
Extraordinary items are reported on the income statement immediately
after discontinued operations.
